Today marks the 1 year anniversary that the S&P 500 closed at its bear market low a year ago Thursday — ending Oct. 12, 2022.

At the time, investors were looking ahead to the following day’s consumer price index release, hoping the latest inflation data would offer insights into the Federal Reserve’s interest rate policy going forward. That CPI report ultimately proceeded a wild session on Wall Street — the S&P 500 was down 2.4% at its lows of the day on Oct. 13, 2022, before a massive reversal ensued and the broad equity index closed up 2.6%.

In hindsight, that dramatic turnaround was the start of a rally that saw the S&P 500 climb 22% from the close on Oct. 12, 2022, through yesterday, Oct 12th 2023. The index was still nearly 9% below its all-time closing highs on Jan. 3, 2022, not including Thursday’s market action. While some have called that we're in a bull market, some still await that we round-trip back to the lows last year. That's what makes a market.

The S&P 500 since Oct. 12, 2022

During those troubled times last year, it was hard to know for certain whether a market floor had been reached. Inflation remained hot, and fears of a Fed-induced recession loomed large. However, our discipline, rigor, and long-term approach was well rewarded. We wrote a post to our investors on Oct. 19th, 2022 to state our position:

"We once again come out to say that we are not folding. We’re going to stay invested, hunkered down through this tough period, looking forward to the light at the end of the tunnel."

"Everything now centers around the risk of inflation, which stems from the Federal Reserve's fight against inflation. However, we don’t know when the Fed is going to win its battle against inflation. When we get even the slightest inclination that inflation is dropping, such as one cooler than expected inflation report, the market will gap up by hundreds of points that will not allow you to get in. By the time the Federal Reserve declares that they have won the battle against inflation, all of the gains in the market would have already happened."

While not everything has gone our way over the past year (it rarely does for any investor), the market comeback demonstrates the importance of staying in the market for the long haul, and looking for opportunities even when doom and gloom reign supreme. The bottom is only recognized in the rear-view mirror and not advertised on the road sign ahead.

Portfolio stock performance

I want to review what has worked and what has not in the past year. One of the dominant market themes has been artificial intelligence, and the potential for the technology — specifically a variety known as generative AI, which can create images and human-like written responses — to transform the financial fortunes of companies.

This theme, which emerged in late 2022 after ChatGPT went viral, has propelled numerous technology stocks, the poster-child of which includes Nvidia (NVDA), to soaring heights. That fact is on display in the graphic below portfolio holdings that have outperformed the S&P 500 since the index’s closing bear market low on Oct. 12, 2022.

Outperformers

• In addition to Nvidia which has been the king, we have Meta Platforms (META), Broadcom (AVGO), Adobe (ADBE), Oracle (ORCL), Microsoft (MSFT), Salesforce (CRM), Alphabet (GOOGL) and we can't leave out our favorite Advanced Micro Devices (AMD) which all have been seen as AI beneficiaries. To be sure, the gains at Salesforce and Meta, the parent of Facebook and Instagram, have also been fueled in large part by aggressive cost-cutting moves at the companies.

• It’s worth noting: We only recently participated in Nvidia, Broadcom and Meta since the middle of this year, so they weren’t part of our portfolio for much of these gains. Still, in both cases, we believe their best days are yet to come.

• Eli Lilly’s near-double since the Oct. 12, 2022 close for the S&P 500 has been driven by optimism around Mounjaro, its diabetes drug that’s soon expected to gain regulator approval as a weight-loss treatment. There’s also excitement around Lilly’s potential Alzheimer’s opportunity.

• Palo Alto Networks, meanwhile, has successfully pivoted to profitability, joining the S&P 500 as a result, and repeatedly demonstrated the quality of its cybersecurity platform.

Underperformers

Viewed through the top-heavy rally lens, though, it’s not a surprise to see about less than half of portfolio stocks underperforming the S&P 500. In general, this year’s market has been colored by a rotation from last year’s winners, such as a defensive healthcare stock like Merck (MRK) or the energy names such as Chevron into the aforementioned tech winners. We also see financial names under the weather this year, due to continued elevation of rates and the threat to the economy.

• We are leaving out some names that we have cut the loss from our portfolio and said "adios," such as the cosmetics giant Estee Lauder (EL) in which we lost nearly 50% of our stake. 

• Our holding’s GE Healthcare (GEHC) is not characterized because it was not publicly traded a year ago. 

Bottom line

The market’s day-to-day movements are hard to predict, and not the basis of our investment strategy. In the bigger picture, our fundamental approach is to stay invested for the long haul, as we’ve done over the past 12 months and continue to do. That’s where the real wealth generation occurs.